Opening Your First Credit Card

When you were a kid did you ever wondered what it would be like to own a credit card with your name on it just like your parents? Well, if you recently turned eighteen, you are officially eligible to apply for a credit card. But how does one start and not get into a mountain of debt? Let’s first look at what factors into your credit card application and what determines if you would be approved or not.

The number one thing that all banks look at is credit scores – a number that represents the creditworthiness of an individual or how likely you are to pay back the money you borrowed. Most college students would be applying for their first card and thus do not possess any kind of credit history making it challenging for banks to assess creditworthiness. However, there are a few things that one can do to increase their chances of approval of a first credit card. 

• Ask your parents/guardians to register you as an authorized user of a credit card. Legally this means that the account holders (parents) are fully responsible for an authorized user’s charges. This is the easiest way to start earning a credit history before turning eighteen. There may be age limitations to register a child as an authorized user. To register an authorized user, your parents would call their card issuer. After a couple of years of recording positive credit history, it might be possible to get approved for a credit card on your own. 

• Open a checking account with the bank where you plan to apply for a credit card, maintain a certain balance, and hold it at least for one calendar year or more. This will begin a customer relationship with the bank and may make you more likely to be approved. Your history would show you had the funds to cover credit card debt, which reduces the likelihood of a default. 

• Apply for cards designed for students. Be sure to read the terms of your card carefully before you commit. Look for cards with no annual fees, fixed rates, cash back or rewards programs, and be sure they report to all three credit bureaus to help you build your credit. And be sure to ALWAYS pay your bill in FULL each month!

• If traditional cards feel too risky or your application has been denied in the past, another option is Secured Credit Cards. Secured cards require a deposit, a collateral in other words, in case you cannot pay off your balance. They may have higher interest rates and lower spending limits, but they do allow you to start building your credit history and carry less risk.

• Remember that banks want to know how likely you are to pay your bills on time, thus having a job and the proof of a constant inflow of funds will be beneficial.

• Each time you apply for any type of credit, you will receive a “hard inquiry” on your credit history. A hard inquiry is simply the background check on your creditworthiness from the bank, the negative side of it is that each hard inquiry reduces your credit score. Do your research before you apply for a card and do not apply for more credit cards than you need to reduce to number of hard inquiries on your file.

After getting a credit card, be sure to monitor your credit score. You are eligible for one free credit report a year at AnnualCreditReport.com which receives information from all three credit bureaus. There are other places you can monitor your credit for free or for small fees, but they may not receive information from all three bureaus. For example, Credit Karma works with two of the three but still provides helpful tools for credit monitoring.  

Warning! Make sure you always pay off your credit cards on time, the biggest downside of credit cards are interest rates. The worst interest rates one may encounter are on credit cards, which in some cases can go all the way up to 25%! It is crucially important to stay disciplined and never use a credit card unless it can be paid off completely before interest can be applied. Otherwise, the massive interest rates and debt will eat you alive.

One you have a credit card, it is imperative to keep up with your budget and start recording all your cash inflows and outflows. If you think that discipline might be a problem, then it might be better not to use a credit card at all or to explore other options, such as secured cards mentioned above, that limit your ability to spend extensively.

If you would like to learn more about credit cards, contact Emory Financial Literacy for a presentation or a peer mentoring session. Some helpful places to look online can be found below:

https://www.cashcourse.org/Topics/Borrow/Manage-Credit-Use-and-Debt-Load/The-Smart-Students-Guide-to-Managing-Credit-Cards

https://www.nerdwallet.com/article/credit-cards/common-student-credit-card-mistakes-to-avoid